Manage excessive annual leave balances

This is a topic that can be a head-scratcher for many of us in the Road Transport Industry.

Excessive leave balances can disrupt business operations, create significant financial liabilities, and even affect employees’ well-being if they’re not taking enough time off. But don’t worry; we’ve got some practical steps to help you navigate this challenge.

Firstly, let’s understand the legal framework. The Fair Work Act 2009 allows employees to accrue unlimited annual leave. However, as an employer, you can direct an employee to take annual leave if it’s reasonable and if their leave balance is excessive – typically defined as eight weeks (or 10 weeks for a shift worker).

Here are the practical steps to managing excessive leave balances:

1. Communicate and Educate: Let your employees know the importance of taking regular leave for their health and well-being. Remind them of your company’s annual leave policy and the consequences of excessive leave accumulation.
2. Monitor Leave Balances: Monitor annual leave balances to catch any excessive accruals early. This could be part of your HR/Payroll software or a manual tracking system.
3. Encourage Regular Leave: Create a culture where employees feel comfortable taking their leave. Consider incentives like a ‘leave management bonus’ for employees who maintain their leave balances within a specified range.
4. Plan and Schedule Leave: Work with employees to schedule their leave during periods of lower business activity to minimise disruption.
5. Direct Employees to Take Leave: If an employee has an excessive leave balance, consider directing them to take leave. Remember, any direction must be reasonable and should provide at least eight (8) weeks’ notice.
6. Leave Cash Options: Consider offering employees annual leave cash-out options, which means receiving payment instead of taking time off work. Annual leave can only be cashed out if an award or registered agreement allows it. Employees must have at least 4 weeks of annual leave left after the cash-out and a written agreement must be made each time.

Remember, employers cannot force or pressure employees to cash out annual leave, and the payment must be the same as if the employee had taken the leave.

Award and agreement-free employees can also cash out annual leave if they have a written agreement with their employer and at least 4 weeks of leave left in their balance.

Managing excessive annual leave can be cost-intensive, especially when implementing robust monitoring systems and incentives. The potential benefits, however, often outweigh these costs.

Reducing excessive leave balances can lessen financial liabilities for your business, improve employee well-being and productivity, and ensure business continuity.

Here are five ways to keep excessive annual leave under control:

1. Develop or Update Leave Policies: Ensure your company’s leave policy complies with the Fair Work Act 2009, is fair to employees, and helps manage excessive leave balances.
2. Implement a Leave Management System: This could be software that monitors leave accrual and sends alerts when a balance is excessive.
3. Roll Out Communication and Education Campaigns: Regularly communicate about leave policies, the importance of regular leave-taking, and any incentives or schemes in place.
4. Initiate Leave Planning Conversations: Regularly discuss leave plans with employees, particularly those with high leave balances.
5. Monitor and Review: Continually monitor leave balances and review the effectiveness of your strategies, making adjustments as needed.

Still not convinced this is an issue worth investing time to solve? Here are three real-life examples of operators who put in place practical measures:

1. Company A noticed a high leave balance for one of its employees. They started a conversation with the employee about their leave plans, and together, they agreed on a scheduled leave that suited both parties.
2. Company B introduced a ‘leave bonus’ scheme, where employees received a small prize for maintaining their leave balances within a specific range. This encouraged regular leave use and helped manage excessive balances.
3. Company C implemented a leave cash-out scheme. Employees with a high leave balance opted to cash out extra weeks of leave, reducing their leave balance and providing them with cash to spend.

By following these practical steps, we can effectively manage excessive annual leave balances, maintaining a healthy balance of productivity, business continuity, and employee well-being.

We’ve also included a template letter from the Fair Work Ombudsman for you to use when directing an employee to take leave.

If you have questions or need further assistance, speak to a NatRoad Advisor.